Question 1

A decrease in the money supply will shift the aggregate __________ curve to the __________.

Accepted Answer

A) supply;left 
B) supply;right 
C) demand;left 
D) demand;right 
A) supply;left 
B) supply;right 
C) demand;left 
D) demand;right

Question 2

The liquidity trap refers to the

Accepted Answer

A) assumption that the money supply curve is vertical as a result of the Fed's control. 
B) problem that occurs when interest rates reach such high levels that no individuals want to hold their wealth in the form of money. 
C) situation that occurs when an excess supply of money results in people holding more money than they desire. 
D) possibility that interest rates drop so low that people willingly hold all the additions to the money supply,rather than use it to buy bonds. 
A) assumption that the money supply curve is vertical as a result of the Fed's control. 
B) problem that occurs when interest rates reach such high levels that no individuals want to hold their wealth in the form of money. 
C) situation that occurs when an excess supply of money results in people holding more money than they desire. 
D) possibility that interest rates drop so low that people willingly hold all the additions to the money supply,rather than use it to buy bonds.

Question 3

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand.Give a hypothetical example to help support your answer.

Accepted Answer

With a specialized labor force,there can

Question 4

According to the Keynesian transmission mechanism,an increase in the money supply causes a(n)__________ in the interest rate and a(n)__________ in investment,which in turn causes a(n)__________ in total expenditures and aggregate demand.

Accepted Answer

A) increase;decrease;decrease 
B) increase;increase;decrease 
C) decrease;increase;increase 
D) decrease;decrease;increase 
A) increase;decrease;decrease 
B) increase;increase;decrease 
C) decrease;increase;increase 
D) decrease;decrease;increase

Question 5

Suppose the economy is experiencing an inflationary gap.Based on available data,the Fed starts implementing contractionary monetary policy,but this moves the economy into a recessionary gap.The most probable explanation is that,because of the total lag in monetary policy,the government did not realize that the economy was already healing itself,i.e. ,that the

Accepted Answer

A) AD curve was shifting rightward. 
B) AD curve was shifting leftward. 
C) SRAS curve was shifting rightward. 
D) SRAS curve was shifting leftward. 
A) AD curve was shifting rightward. 
B) AD curve was shifting leftward. 
C) SRAS curve was shifting rightward. 
D) SRAS curve was shifting leftward.

Question 6

The Taylor Rule specifies that the federal funds rate target should be equal to

Accepted Answer

A) 0.5 ( inflation rate)+ 1.5 (GDP gap)+ 1 
B) 1.5 (inflation rate)+ 0.5 (GDP gap)+ 1. 
C) interest rate - expected inflation rate. 
D) equilibrium federal funds rate + inflation rate +1 
A) 0.5 ( inflation rate)+ 1.5 (GDP gap)+ 1 
B) 1.5 (inflation rate)+ 0.5 (GDP gap)+ 1. 
C) interest rate - expected inflation rate. 
D) equilibrium federal funds rate + inflation rate +1

Question 7

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Accepted Answer

A) direct. 
B) indirect. 
C) inverse. 
D) none of the above 
A) direct. 
B) indirect. 
C) inverse. 
D) none of the above

Question 8

The economy is in the horizontal portion of the AS curve,there is no liquidity trap and investment is sensitive to changes in the interest rate.According to the Keynesian transmission mechanism,if the money supply increases the interest rate will __________,investment spending will __________,the AD curve will shift to the __________,and Real GDP will __________.

Accepted Answer

A) fall;rise;right;not change 
B) fall;rise;left;rise 
C) rise;rise;right;rise 
D) fall;rise;right;fall 
E) fall;fall;left;fall 
A) fall;rise;right;not change 
B) fall;rise;left;rise 
C) rise;rise;right;rise 
D) fall;rise;right;fall 
E) fall;fall;left;fall

Question 9

The existence of a liquidity trap implies that

Accepted Answer

A) a decrease in the interest rate might not increase investment spending. 
B) an increase in the demand for money will be followed by an equal increase in the supply of money. 
C) an increase in the supply of money may not lower interest rates. 
D) a and c 
A) a decrease in the interest rate might not increase investment spending. 
B) an increase in the demand for money will be followed by an equal increase in the supply of money. 
C) an increase in the supply of money may not lower interest rates. 
D) a and c

Question 10

Which of the following statements is true?

Accepted Answer

A) Interest rates are directly related to the price of old or existing bonds. 
B) The monetarist transmission mechanism is indirect whereas the Keynesian transmission mechanism is direct. 
C) The interest rate is the opportunity cost of holding money. 
D) a and b 
E) a,b and c 
A) Interest rates are directly related to the price of old or existing bonds. 
B) The monetarist transmission mechanism is indirect whereas the Keynesian transmission mechanism is direct. 
C) The interest rate is the opportunity cost of holding money. 
D) a and b 
E) a,b and c

Question 11

Economists who favor activist monetary policy often argue that

Accepted Answer

A) during the mid-1970s,money supply growth rates were nearly constant and still the economy went through a recession. 
B) during the mid-1970s,activist monetary policy was applied and the economy was healthy and stable. 
C) activist monetary policy is inflexible and this is one of its virtues;the money supply doesn't change every year in response to political considerations. 
D) activist monetary policy is likely to be destabilizing most of the time,but still it is the better way to proceed. 
A) during the mid-1970s,money supply growth rates were nearly constant and still the economy went through a recession. 
B) during the mid-1970s,activist monetary policy was applied and the economy was healthy and stable. 
C) activist monetary policy is inflexible and this is one of its virtues;the money supply doesn't change every year in response to political considerations. 
D) activist monetary policy is likely to be destabilizing most of the time,but still it is the better way to proceed.

Question 12

Equilibrium in the money market exists when the quantity demanded of money equals the quantity supplied of money.

Accepted Answer

A) True 
 B)False

Question 13

Monetary policy refers to

Accepted Answer

A) actions taken by banks and other financial institutions regarding their approaches to lending,account management,etc. 
B) changes in the money supply to achieve particular economic goals. 
C) changes in government expenditures and taxation to achieve particular economic goals. 
D) the change in private expenditures that occurs as a consequence of changes in the money supply. 
A) actions taken by banks and other financial institutions regarding their approaches to lending,account management,etc. 
B) changes in the money supply to achieve particular economic goals. 
C) changes in government expenditures and taxation to achieve particular economic goals. 
D) the change in private expenditures that occurs as a consequence of changes in the money supply.

Question 14

The Taylor Rule provides policymakers with a target for

Accepted Answer

A) the federal funds rate. 
B) the discount rate. 
C) the inflation rate. 
D) the unemployment rate. 
E) c and d 
A) the federal funds rate. 
B) the discount rate. 
C) the inflation rate. 
D) the unemployment rate. 
E) c and d

Question 15

As the interest rate falls,the quantity

Accepted Answer

A) demanded of money falls. 
B) demanded of money rises. 
C) supplied of money rises. 
D) supplied of money falls. 
A) demanded of money falls. 
B) demanded of money rises. 
C) supplied of money rises. 
D) supplied of money falls.

Question 16

Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?

Accepted Answer

Inflation targeting requires that the Fe

Question 17

Exhibit 15-5​  
-Refer to Exhibit 15-5.Assume that the economy starts out in short-run equilibrium.An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap.

Accepted Answer

A) expansionary;inflationary 
B) expansionary;recessionary 
C) contractionary;recessionary 
D) contractionary;inflationary 
A) expansionary;inflationary 
B) expansionary;recessionary 
C) contractionary;recessionary 
D) contractionary;inflationary

Question 18

Nonactivists hold that

Accepted Answer

A) activist monetary policies are likely to be destabilizing rather than stabilizing. 
B) economic fine-tuning is quite feasible. 
C) flexibility in wages and prices is sufficient to allow the economy to return at a reasonable speed to full-employment output. 
D) a and c 
E) all of the above 
A) activist monetary policies are likely to be destabilizing rather than stabilizing. 
B) economic fine-tuning is quite feasible. 
C) flexibility in wages and prices is sufficient to allow the economy to return at a reasonable speed to full-employment output. 
D) a and c 
E) all of the above

Question 19

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Accepted Answer

A) Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment. 
B) monetarist transmission mechanism. 
C) Keynesian transmission mechanism when there is a liquidity trap. 
D) Keynesian transmission mechanism with interest-insensitive investment. 
E) a and b 
A) Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment. 
B) monetarist transmission mechanism. 
C) Keynesian transmission mechanism when there is a liquidity trap. 
D) Keynesian transmission mechanism with interest-insensitive investment. 
E) a and b

Question 20

If the interest rate falls,the opportunity cost of holding money __________ and the quantity demanded of money __________.

Accepted Answer

A) rises,rises 
B) rises,falls 
C) falls,rises 
D) falls,falls 
A) rises,rises 
B) rises,falls 
C) falls,rises 
D) falls,falls

Exam 15: Monetary Policy

A decrease in the money supply will shift the aggregate __________ curve to the __________.

The liquidity trap refers to the

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand.Give a hypothetical example to help support your answer.

According to the Keynesian transmission mechanism,an increase in the money supply causes a(n)__________ in the interest rate and a(n)__________ in investment,which in turn causes a(n)__________ in total expenditures and aggregate demand.

The Taylor Rule specifies that the federal funds rate target should be equal to

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

The existence of a liquidity trap implies that

Which of the following statements is true?

Economists who favor activist monetary policy often argue that

Equilibrium in the money market exists when the quantity demanded of money equals the quantity supplied of money.

Monetary policy refers to

The Taylor Rule provides policymakers with a target for

As the interest rate falls,the quantity

Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?

Exhibit 15-5​ -Refer to Exhibit 15-5.Assume that the economy starts out in short-run equilibrium.An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap.

Nonactivists hold that

The money supply decreased and the AD curve shifted to the left.This is consistent with the

If the interest rate falls,the opportunity cost of holding money __________ and the quantity demanded of money __________.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, part I: Prices and Unemployment

Macroeconomic Measurements, part II: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Money and the Economy

Expectations Theory and the Economy

Economic Growth: Resources, technology, ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Filters

A decrease in the money supply will shift the aggregate curve to the .

According to the Keynesian transmission mechanism,an increase in the money supply causes a(n) in the interest rate and a(n) in investment,which in turn causes a(n)__ in total expenditures and aggregate demand.

Exhibit 15-5 -Refer to Exhibit 15-5.Assume that the economy starts out in short-run equilibrium.An economist who believes that the economy is not self-regulating would assert that the government should use _ fiscal policy to close the existing ___ gap.

If the interest rate falls,the opportunity cost of holding money and the quantity demanded of money .